September 17, 2011

I was
becoming a bit concerned with all the information floating on the internet….
Emotional netizens passing on snippets on how low the prices of petrol were in
other countries and how the ‘Indian Government’ was ripping the public off. So,
I decided look into if all that was real and found that all of that was half
cooked truth (in red). Following are the current prices in those countries-

We need
to rationalize how we compare the prices in two countries, if you want to
compare say between India and Pakistan should we compare INR to PKR or convert
prices to USD and compare so? The later definitely might not (for I am not too
sure about economics) always give the ‘right’ picture. Let’s see if we take USD
as the base and compare fuel prices across the globe as shown in the map below:

This
depicts that price of fuel in India is quite low compared to the ‘Whole of EU’.
So, does it mean the EU is ripping of their people ‘better’ the Indian govt is
doing? In which case, we are doing better than them isn’t it? For example the
cost of gasoline in UK is around 129.3p which roughly translates to around 90
INR. But, it here that the factors of per capita income or cost of living or
PPP and few other reasons (DO NOT ASK ME WHAT) are missing. I am sure someone
other than me can throw better light on what are all the factors?

Now for
price of Petrol in A.P.

The current price after the latest revision is 74 INR
per litre. The info floating on internet---

For the sake of those, I have tried to put together
the break down of fuel price as follows:

International
price of a barrel of Crude Oil

$ 105

Price per litre
of Crude

$ 0.66

Price per litre
in INR

INR 30.10

Customs/ Import
duty on crude @0%(‘11 Budget)

INR 00.00

Cost of Crude
Refining + Transportation + Margins

INR 09.10

Customs Duty on
Petrol @2,5%(‘11 Budget)

INR 00.98

Central Excise
Duty on Petrol (''11 Budget)

INR 14.50

Price of Petrol
arriving in AP

INR 54.68

Sales Tax levied
by AP State Govt @33%

INR 18.04

Vendor Commission (assuming @1,75%)

INR 01.30

Price Paid by
the citizen (in AP)

INR 74.02

There were a few assumptions made--

1.Current
price of crude oil is considered against the avg price in India’s energy basket
which stands at around 110 USD

2.Vendor
commission assumed same as neighbouring states and thus
arrived at petrol price arriving in AP

3.Indian
oil companies earn an avg refining margin of $8.4/ barrel.

4.1 Barrel
= 158.99 litres

5.1 USD =
45.6 INR (Avg conversation ratio)

From the
above figures it is clear the nearly 45% of the price is due to taxes levied.
Central government has been trying to get off with the taxes levied at State level,
but it is being resisted by the individual state heads as the tax amount is a
substantial part of the state revenues. The states that levy the highest taxes
on petrol are- AP – 33%, Punjab – 32%,
Karnataka – 25%(plus 5% entry tax), Kerala – 29%, Tamil Nadu –27% (they cut 3%
since May ’11)….. will see if I can get the same for rest …… big ask, better
forget it!

So, the
conclusion if the taxes aren’t levied the price at which “WE” can get petrol is
around INR 40!! Does it mean
taxation be abolished? The petroleum taxation accounts for 3.1% of national GDP
and close to 16-17% of state government’s own tax revenues. And thus it becomes
the case of the chicken or the egg??? Make your own inference!